The “Invisible” Document That Proves You Own Your Company
In Delaware, the Certificate of Formation (the document filed with the State) does not list the names of the members or managers. This provides excellent privacy, but it leads to a common question: How do I prove I own my LLC?
The answer is the Operating Agreement.
What is an Operating Agreement?
It is an internal legal document that outlines the ownership and operating procedures of your LLC. Think of it as the “Constitution” of your business. Although Delaware does not require you to file it with the State, having a written agreement is crucial for several reasons.
3 Reasons Why You Need a Professional Agreement:
- Opening a Bank Account: No U.S. bank (Mercury, Relay, or Chase) will open a business account without seeing a signed Operating Agreement that identifies you as the owner.
- Asset Protection: It helps maintain your “Corporate Veil.” If you don’t have an agreement, courts might decide your LLC is just an extension of yourself, putting your personal assets at risk.
- Conflict Resolution: It defines how profits are distributed, how decisions are made, and what happens if a partner wants to leave the company.
What Should It Include?
- Ownership Percentages: Who owns what.
- Management Structure: Who has the power to sign contracts.
- Dissolution Clause: How to close the company legally.
- Tax Treatment: How the LLC intends to be taxed (Pass-through vs. C-Corp).
Conclusion
Privacy is a great advantage of Delaware, but you must have your internal paperwork in order. Without an Operating Agreement, your LLC is like a car without a title—you might drive it, but you can’t prove it’s yours.
